Massive Cost Inflation Explored - Dairy
We have never seen a year when budgeting has been so challenging. Every time we talk to the trade the cost of raw materials has risen yet again. Fortunately, milk price is eventually catching up, but what does it all mean for 2022 - 23 accounts?
Extrapolating forward from what we know today, our estimate is attached and summarised below:
| DGCL 2020 21 |
DGCL 2021 22 |
DGCL Expected 2022 23 |
DGCL expected |
|
|---|---|---|---|---|
| TOTAL OUTPUT | 33.36 | 35.55 | 50.55 | 1.42 |
| TOTAL VARIABLE COSTS | 17.47 | 18.74 | 27.68 | 1.48 |
| GROSS MARGIN | 15.89 | 16.81 | 22.87 | 1.36 |
| TOTAL DIRECT OVERHEADS | 13.73 | 14.41 | 18.15 | 1.26 |
| TOTAL RESOURCE COSTS | 2.38 | 2.38 | 2.74 | 1.15 |
| PROFIT Excl. BPS | -0.22 | 0.03 | 1.98 | |
| COMPARABLE FARM PROFIT | 2.16 | 2.41 | 4.72 | 1.96 |
| COMPARABLE COST OF PRODUCTION | 31.2 | 33.14 | 45.83 | 1.38 |
After a considerable lag in the Spring, milk prices are now keeping up with inflation, but there is still not much slack! Recent turmoil in the financial markets is adding yet further stresses, and the full extent of interest rises are yet to be seen. In our analysis we have increased interest by 35%, but for many it will be considerably more, eroding profit per litre to historic (i.e. low) levels.
Many businesses with robust production systems, ones that can cope with higher input costs, coupled with lower levels of debt, will have a much better year.
At DGCL we are helping our clients develop systems that leave a good margin per litre. Not necessarily the highest yields, but systems based on great technical results, and good milk price to spend ratio’s.
Dairy Farm Business Software
Our software allows us to take a creative and innovative approach to guide you through turbulent times:
- Look at the impact of inflation on your profit outturn
- Model on how to react
- Plan with greater confidence
We’re investing in additional consultancy capacity and are taking on new farming clients now!
100% independent, 100% for you.
Do get in touch by calling Douglas Green on 01666 817278 or emailing our dairy farm consultants via douglas@douglasgreenconsulting.co.uk